SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number: 1-12110
CAMDEN PROPERTY TRUST
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 76-6088377
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
3 Greenway Plaza, Suite 1300, Houston, Texas 77046
(Address of Principal Executive Offices) (Zip Code)
(713) 354-2500
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of November 10, 1999, there were 40,213,320 shares of Common Shares of
Beneficial Interest, $0.01 par value outstanding.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAMDEN PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- --------------
(Unaudited)
Real estate assets, at cost:
Land $ 349,388 $ 321,752
Buildings and improvements 2,070,162 1,917,026
--------------- --------------
2,419,550 2,238,778
Less: accumulated depreciation (230,431) (167,560)
--------------- --------------
Net operating real estate assets 2,189,119 2,071,218
Projects under development, including land 191,408 216,680
Investment in joint ventures 22,397 32,484
--------------- --------------
Total real estate assets 2,402,924 2,320,382
Accounts receivable - affiliates 1,252 831
Notes receivable:
Affiliates 1,800 1,800
Other 27,331
Other assets, net 16,406 15,036
Cash and cash equivalents 13,790 5,647
Restricted cash - escrow deposits 5,169 4,286
--------------- --------------
Total assets $ 2,468,672 $ 2,347,982
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable:
Unsecured $ 739,526 $ 632,923
Secured 345,960 369,645
Accounts payable 18,644 24,180
Accrued real estate taxes 26,731 21,474
Accrued expenses and other liabilities 34,927 28,278
Distributions payable 27,573 25,735
--------------- --------------
Total liabilities 1,193,361 1,102,235
Minority Interests:
Preferred units 132,712
Common units 65,539 71,783
--------------- -------------
Total minority interests 198,251 71,783
7.33% Convertible Subordinated Debentures 3,451 3,576
Shareholders' Equity:
Preferred shares of beneficial interest 42 42
Common shares of beneficial interest 447 447
Additional paid-in capital 1,303,395 1,299,539
Distributions in excess of net income (123,788) (98,897)
Unearned restricted share awards (9,316) (10,039)
Less: treasury shares, at cost (97,171) (20,704)
--------------- --------------
Total shareholders' equity 1,073,609 1,170,388
--------------- --------------
Total liabilities and shareholders' equity $ 2,468,672 $ 2,347,982
=============== ==============
See Notes to Consolidated Financial Statements.
3
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ------------ ----------- ------------
REVENUES
Rental income $ 86,753 $ 79,802 $ 252,582 $ 219,601
Other property income 6,006 4,973 16,585 13,539
----------- ---------- ----------- -----------
Total property income 92,759 84,775 269,167 233,140
Equity in income of joint ventures (472) 317 472 1,039
Fee and asset management 1,404 510 3,627 859
Other income 486 947 1,158 1,690
----------- ---------- ----------- -----------
Total revenues 94,177 86,549 274,424 236,728
----------- ---------- ----------- -----------
EXPENSES
Property operating and maintenance 28,205 25,506 80,344 72,755
Real estate taxes 9,165 8,153 27,669 23,122
General and administrative 2,473 2,013 7,272 5,532
Interest 14,709 13,414 42,227 36,680
Depreciation and amortization 22,703 20,411 65,541 57,388
----------- ---------- ----------- -----------
Total expenses 77,255 69,497 223,053 195,477
----------- ---------- ----------- -----------
Income before gain on sale of properties and joint
venture interests and minority interests 16,922 17,052 51,371 41,251
Gain on sale of properties and joint venture interests 2,259 2,979
----------- ---------- ----------- -----------
Income before minority interests 19,181 17,052 54,350 41,251
Minority interests
Preferred unit distributions (2,411) (5,392)
Minority interest (892) (59) (1,850) (1,043)
----------- ----------- ----------- -----------
Total minority interests (3,303) (59) (7,242) (1,043)
----------- ----------- ----------- -----------
Net income 15,878 16,993 47,108 40,208
Preferred share dividends (2,343) (2,343) (7,029) (7,029)
----------- ----------- ----------- -----------
Net income to common shareholders $ 13,535 $ 14,650 $ 40,079 $ 33,179
=========== =========== =========== ===========
Basic earnings per share $ 0.33 $ 0.33 $ 0.96 $ 0.83
Diluted earnings per share $ 0.32 $ 0.31 $ 0.94 $ 0.79
Distributions declared per common share $ 0.520 $ 0.505 $ 1.560 $ 1.515
Weighted average number of common shares
outstanding 40,939 44,370 41,668 40,115
Weighted average number of common and
common dilutive equivalent shares outstanding 42,025 47,437 44,728 43,116
See Notes to Consolidated Financial Statements.
4
CAMDEN PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months
Ended September 30,
----------------------------
1999 1998
------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 47,108 $ 40,208
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 65,541 57,388
Equity in income of joint ventures, net of cash received 1,963 486
Gain on sale of properties and joint venture interests (2,979)
Minority interest 1,850 1,043
Accretion of discount on unsecured notes payable 223 124
Net change in operating accounts 7,464 (3,789)
------------ ------------
Net cash provided by operating activities 121,170 95,460
CASH FLOW FROM INVESTING ACTIVITIES
Cash of Oasis at acquisition 7,253
Net proceeds from Third Party Transaction 226,128
Increase in real estate assets (166,990) (271,742)
Net proceeds from sale of properties 13,226 42,513
Net proceeds from sale of joint venture interests 5,465 6,841
Increase in investment in joint ventures (2,012) (4,795)
Decrease in investment in joint ventures 6,400 1,478
Net (increase) decrease in notes receivable (27,331) 1,750
Net decrease in affiliate notes receivable 5,389
Other (1,488) (1,146)
------------ ------------
Net cash (used in) provided by investing activities (172,730) 13,669
CASH FLOW FROM FINANCING ACTIVITIES
Net (decrease) increase in unsecured lines of credit and short-term
borrowings (147,000) 113,792
Debt repayments from Third Party Transaction (114,248)
Proceeds from notes payable 253,380 50,600
Proceeds from issuance of preferred units, net 132,712
Repayment of notes payable (23,685) (65,001)
Distributions to shareholders and minority interests (79,722) (63,055)
Repurchase of common shares and units (79,247) (1,616)
Other 3,265 (120)
------------ ------------
Net cash provided by (used in) financing activities 59,703 (79,648)
------------ ------------
Net increase in cash and cash equivalents 8,143 29,481
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,647 6,468
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,790 $ 35,949
============ ============
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of interest capitalized $ 35,526 $ 31,767
Interest capitalized $ 12,306 $ 6,385
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of Oasis (including the Third Party Transaction), net of cash acquired
and fair value adjustment from the acquisitions of Oasis and Paragon:
Fair value of assets acquired $ 835 $ 783,500
Liabilities assumed 835 495,708
Common shares issued 395,528
Preferred shares issued 104,125
Fair value of minority interest 21,520
Conversion of 7.33% subordinated debentures to common shares, net $ 125 $ 2,242
Value of shares issued under benefit plans, net $ 2,004 $ 6,180
Conversion of operating partnership units to common shares $ 387 $ 9,581
Note payable assumed upon purchase of a property $ 22,424
See Notes to Consolidated Financial Statements.
5
CAMDEN PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited financial information has been
prepared according to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted according to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management, all
adjustments and eliminations, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of Camden Property Trust as
of September 30, 1999 and the results of operations for the three and nine
months ended September 30, 1999 and 1998 and cash flows for the nine months
ended September 30, 1999 and 1998 have been included. The results of operations
for such interim periods are not necessarily indicative of the results for the
full year.
BUSINESS
We are a Houston-based real estate investment trust ("REIT") and report
as a single business segment with activities related to the ownership,
development, acquisition, management and disposition of multifamily apartment
communities in the Southwest, Southeast, Midwest and Western regions of the
United States. At September 30, 1999, we owned interests in, operated or were
developing 159 multifamily properties containing 55,785 apartment homes located
in nine states. Eight of our multifamily properties containing 3,570 apartment
homes were under development at September 30, 1999. Two of our newly developed
multifamily properties containing 820 apartment homes were in lease-up at
September 30, 1999. We have several additional sites which we intend to develop
into multifamily apartment communities.
ACQUISITION OF OASIS RESIDENTIAL, INC.
On April 8, 1998, we acquired, through a tax-free merger, Oasis
Residential, Inc., a publicly traded Las Vegas-based multifamily REIT. The
acquisition increased the size of our portfolio from 100 to 152 completed
multifamily properties, and from 34,669 to 50,183 apartment homes at the date of
acquisition. Each share of Oasis common stock outstanding on April 8, 1998 was
exchanged for 0.759 of a Camden common share. Each share of Oasis Series A
cumulative convertible preferred stock outstanding on April 8, 1998 was reissued
as one Camden Series A cumulative convertible preferred share with terms and
conditions comparable to the Oasis preferred stock. We issued 12.4 million
common shares and 4.2 million preferred shares in exchange for the outstanding
Oasis common and preferred stock, respectively. Approximately $484 million of
Oasis debt, at fair value, was assumed in the merger.
In connection with the merger with Oasis, on June 30, 1998, we completed
a transaction in which Camden USA, Inc., one of our wholly owned subsidiaries,
and TMT-Nevada, L.L.C., a Delaware limited liability company, formed
Sierra-Nevada Multifamily Investments, LLC. We entered into this transaction to
reduce our market risk in the Las Vegas area. TMT-Nevada holds an 80% interest
in Sierra-Nevada and Camden USA holds the remaining 20% interest.
In this transaction, we transferred to Sierra-Nevada 19 apartment
communities containing 5,119 apartment homes for an aggregate of $248 million.
Prior to the merger, Oasis owned 100% of each of these communities. In the
merger, Camden USA acquired these communities. As a result, after the merger and
prior to the Sierra-Nevada transaction, Camden USA owned 100% of each of these
19 properties. These properties are located in Las Vegas, Nevada. This
transaction was funded with capital invested by the members of Sierra-Nevada,
6
the assumption of $9.9 million of existing nonrecourse indebtedness, the
issuance of 17 nonrecourse cross collateralized and cross defaulted loans
totaling $180 million and the issuance of two nonrecourse second lien mortgages
totaling $7 million.
REAL ESTATE ASSETS AT COST
We capitalized $19.2 million and $18.7 million in the nine months ended
September 30, 1999 and 1998, respectively, of renovation and improvement costs
which we believe extended the economic lives and enhanced the earnings of our
multifamily properties. If we had adopted the accounting policy described below
as of January 1, 1998, the amounts capitalized for the nine months ended
September 30, 1998 would have been $19.8 million.
Effective April 1, 1998, we implemented prospectively a new accounting
policy where expenditures for floor coverings, appliances and HVAC unit
replacements are capitalized and depreciated over their estimated useful lives.
Previously, all such replacements had been expensed. We believe that the newly
adopted accounting policy is preferable as it is consistent with standards and
practices utilized by the majority of our peers and provides a better matching
of expenses with the related benefit of the expenditure. The change in
accounting principle is inseparable from the effect of the change in accounting
estimate and is therefore treated as a change in accounting estimate. See Recent
Accounting Pronouncements below for the effect of this change and our adoption
of a recent accounting pronouncement on our financial results for the nine
months ended September 30, 1998.
PROPERTY OPERATING AND MAINTENANCE EXPENSES
Property operating and maintenance expenses included normal repairs and
maintenance totaling $6.8 million and $18.4 million for the three and nine
months ended September 30, 1999, and $6.0 million and $15.7 million for the
three and nine months ended September 30, 1998, respectively.
COMMON SHARE DIVIDEND DECLARATION
In September 1999, we announced that our Board of Trust Managers had
declared a dividend in the amount of $0.52 per share for the third quarter of
1999 which was paid on October 15, 1999 to all common shareholders of record as
of September 30, 1999. We paid an equivalent amount per unit to holders of
common operating partnership units. This distribution to common shareholders and
holders of common operating partnership units equates to an annualized dividend
rate of $2.08 per share or unit.
PREFERRED SHARE DIVIDEND DECLARATION
In September 1999, we announced that our Board of Trust Managers had
declared a quarterly dividend on our preferred shares in the amount of $0.5625
per share payable November 15, 1999 to all preferred shareholders of record as
of September 30, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
On March 19, 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus decision on Issue No. 97-11,
Accounting for Internal Costs Relating to Real Estate Property Acquisitions,
which requires that internal costs of identifying and acquiring operating
properties be expensed as incurred for transactions entered into on or after
March 20, 1998. Prior to our adoption of this policy, we had been capitalizing
such costs. Had we adopted Issue No. 97-11 and the new accounting policy for
floor coverings, appliances and HVAC unit replacements as of January 1, 1998,
net income to common shareholders would have increased $650,000 or $0.02 per
basic and diluted earnings per share for the nine months ended September 30,
1998.
7
EARNINGS PER SHARE
The following table presents information necessary to calculate basic
and diluted earnings per share for the three and nine months ended September 30,
1999 and 1998:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE:
Weighted Average Common Shares Outstanding 40,939 44,370 41,668 40,115
=========== =========== =========== ===========
Basic Earnings Per Share $ 0.33 $ 0.33 $ 0.96 $ 0.83
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE:
Weighted Average Common Shares Outstanding 40,939 44,370 41,668 40,115
Shares Issuable from Assumed Conversion of:
Common Share Options and Awards Granted 452 387 414 414
Minority Interest Units 634 2,680 2,646 2,587
----------- ----------- ----------- -----------
Weighted Average Common Shares Outstanding, as Adjusted 42,025 47,437 44,728 43,116
=========== =========== =========== ===========
Diluted Earnings Per Share $ 0.32 $ 0.31 $ 0.94 $ 0.79
=========== =========== =========== ===========
EARNINGS FOR BASIC AND DILUTED COMPUTATION:
Net Income $ 15,878 $ 16,993 $ 47,108 $ 40,208
Less: Preferred Share Dividends 2,343 2,343 7,029 7,029
----------- ----------- ----------- -----------
Net Income to Common Shareholders 13,535 14,650 40,079 33,179
(Basic Earnings Per Share Computation)
Minority Interest 59 1,850 1,043
----------- ----------- ----------- -----------
Net Income to Common Shareholders, as Adjusted
(Diluted Earnings Per Share Computation) $ 13,535 $ 14,709 $ 41,929 $ 34,222
=========== =========== =========== ===========
RECLASSIFICATIONS
Certain reclassifications have been made to amounts in prior year financial
statements to conform with current year presentations.
2. NOTES RECEIVABLE
We have entered into agreements with unaffiliated third parties to develop,
construct, and manage four multifamily projects. We are providing financing for
a portion of each project in the form of four year notes receivable. These notes
earn interest at 10% and are secured by liens on the assets and partial
guarantees by the third party owners. At September 30, 1999, these notes had
principal balances totaling $21.0 million. We anticipate funding up to an
aggregate of $41 million in connection with these projects. We earn fees for
managing the development, construction and eventual operations of these
properties. We have the option to purchase these properties in the future at a
price to be determined based upon the property's performance and an agreed
valuation model.
8
3. NOTES PAYABLE
The following is a summary of our indebtedness:
(In millions)
September 30, December 31,
1999 1998
----------------- ----------------
Senior Unsecured Notes:
6.73% - 7.28% Notes, due 2001-2006 $ 523.0 $ 323.9
6.68% - 7.63% Medium Term Notes, due 2000 - 2009 181.5 127.0
Unsecured Lines of Credit and Short-Term Borrowings 35.0 182.0
--------------- -------------
739.5 632.9
Secured Notes - Mortgage loans (5.45% - 8.63%), due 2001 - 2028 346.0 369.7
--------------- -------------
Total notes payable $ 1,085.5 $ 1,002.6
=============== =============
In August 1999, we entered into a line of credit with 14 banks for a total
commitment of $375 million. This line of credit replaces our three previous
lines of credit which totaled $275 million. The new line of credit is scheduled
to mature in August 2002. The scheduled interest rate on the line of credit is
currently based on a spread over LIBOR or Prime. The scheduled interest rates
are subject to change as our credit ratings change. Advances under the line of
credit may be priced at the scheduled rates, or we may enter into bid rate loans
with participating banks at rates below the scheduled rates. These bid rate
loans have terms of six months or less and may not exceed the lesser of $187.5
million or the remaining amount available under the line of credit. The line of
credit is subject to customary financial covenants and limitations.
During September 1999, we executed three interest rate swap agreements
totaling $70 million which are scheduled to mature in October 2000. These swaps
are being used as a hedge of interest rate exposure on our $90 million medium
term notes issued in October 1998 which mature in October 2000. Currently, the
interest rate on the medium term notes is fixed at 7.23%. The interest rates on
the swaps are based on the one-month LIBOR rate plus a spread resulting in an
effective interest rate on the swaps of 6.58% at September 30, 1999.
During the first quarter of 1999, we issued $39.5 million aggregate
principal amounts of senior unsecured notes from our $196 million medium-term
note shelf registration. These fixed rate notes, due in January 2002 through
January 2009, bear interest at a weighted average rate of 7.07%, payable
semiannually on January 15 and July 15. The net proceeds were used to reduce
indebtedness outstanding under the unsecured lines of credit.
In April 1999, we issued $15 million aggregate principal amounts of senior
unsecured notes from our $196 million medium-term note shelf registration. These
fixed rate notes, due in March 2002, bear interest at a rate of 6.74%, payable
semiannually on March 15 and September 15. The net proceeds were used to reduce
indebtedness outstanding under the unsecured lines of credit.
In April 1999, we issued from our $500 million shelf registration an
aggregate principal amount of $200 million of five-year senior unsecured notes.
Interest on the notes accrues at an annual rate of 7.0% and is payable
semi-annually on April 15 and October 15, commencing on October 15, 1999. The
notes are direct, senior unsecured obligations and rank equally with all other
unsecured and unsubordinated indebtedness. The notes may be redeemed at any time
at our option subject to a make-whole provision. We used the net proceeds of
$197.7 million to reduce $171 million of indebtedness under the unsecured lines
of credit and for general working capital purposes.
9
At September 30, 1999, the weighted average interest rate on floating rate
debt was 6.07%.
4. NET CHANGE IN OPERATING ACCOUNTS
The effect of changes in the operating accounts on cash flows from
operating activities is as follows:
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
----------- -----------
Decrease (increase) in assets:
Accounts receivable - affiliates $ (175) $ 1,298
Other assets, net (1,787) 421
Restricted cash - escrow deposits (883) 1,337
Increase (decrease) in liabilities:
Accounts payable (6,551) (5,027)
Accrued real estate taxes 5,257 5,028
Accrued expenses and other liabilities 11,603 (6,846)
----------- -----------
Net change in operating accounts $ 7,464 $ (3,789)
=========== ===========
10
5. PREFERRED UNITS
In February 1999, our operating partnership issued $100 million of 8.5%
Series B Cumulative Redeemable Perpetual Preferred Units. Distributions on the
preferred units are payable quarterly in arrears. The preferred units are
redeemable for cash by the operating partnership on or after the fifth
anniversary of issuance at par plus the amount of any accumulated and unpaid
distributions. The preferred units are convertible after 10 years by the holder
into our 8.5% Series B Cumulative Redeemable Perpetual Preferred Shares. The
preferred units are subordinate to present and future debt.
During the third quarter of 1999, our operating partnership issued $35.5
million of 8.25% Series C Cumulative Redeemable Perpetual Preferred Units.
Distributions on the preferred units are payable quarterly in arrears. The
preferred units are redeemable for cash by the operating partnership on or after
the fifth anniversary of issuance at par plus the amount of any accumulated and
unpaid distributions. The preferred units are convertible after 10 years by the
holder into our 8.25% Series C Cumulative Redeemable Perpetual Preferred Shares.
The preferred units are subordinate to present and future debt.
6. RESTRICTED SHARE AND OPTION AWARDS
During the first nine months of 1999, we granted 132,144 restricted shares
in lieu of cash compensation to certain key employees and non-employee trust
managers. The restricted shares were issued based on the market value of
ourcommon shares at the date of grant and have vesting periods of up to five
years. We also granted 603,071 options with an exercise price equal to the
market value of our common shares on the date of grant. The options become
exercisable in equal increments over three years, beginning on the first
anniversary of the grant. During the nine month period ended September 30, 1999,
previously granted options to purchase 649,119 shares became exercisable and
113,324 restricted shares vested.
7. COMMON SHARE REPURCHASE PROGRAM
In March 1999, the Board of Trust Managers authorized us to repurchase up
to $50 million of our common shares and units through open market purchase and
private transactions. This amount is in addition to the initial $50 million the
Board of Trust Managers authorized for repurchase in September 1998. As of
11
September 30, 1999, we had repurchased 3,900,560 common shares and units for a
total cost of $100.0 million. Additionally, in October 1999, the Board of Trust
Managers authorized us to repurchase up to $100 million of our common shares and
units through open market purchases and private transactions. Subsequent to
September 30, 1999, we repurchased 722,200 shares and units at a total cost of
$19.2 million under the new program.
8. CONVERTIBLE PREFERRED SHARES
The 4,165,000 preferred shares issued in conjunction with the Oasis merger
pay a cumulative dividend quarterly in arrears in an amount equal to $2.25 per
share per annum. The preferred shares generally have no voting rights and have a
liquidation preference of $25 per share plus accrued and unpaid distributions.
The preferred shares are convertible at the option of the holder at any time
into common shares at a conversion price of $32.4638 per common share
(equivalent to a conversion rate of 0.7701 per common share for each preferred
share), subject to adjustment in certain circumstances. The preferred shares are
not redeemable prior to April 30, 2001.
9. CONTINGENCIES
Prior to our merger, Oasis had been contacted by certain regulatory
agencies with regards to alleged failures to comply with the Fair Housing
Amendments Act (the "Fair Housing Act") as it pertained to nine properties
(seven of which we currently own) constructed for first occupancy after March
31, 1991. On February 1, 1999, the Justice Department filed a lawsuit against us
and several other defendants in the United States District Court for the
District of Nevada alleging (1) that the design and construction of these
properties violates the Fair Housing Act and (2) that we, through the merger
with Oasis, had discriminated in the rental of dwellings to persons because of
handicap. The complaint requests an order that (i) declares that the defendants'
policies and practices violate the Fair Housing Act; (ii) enjoins us from (a)
failing or refusing, to the extent possible, to bring the dwelling units and
public use and common use areas at these properties and other covered units that
Oasis had designed and/or constructed into compliance with the Fair Housing Act,
(b) failing or refusing to take such affirmative steps as may be necessary to
restore, as nearly as possible, the alleged victims of the defendants' alleged
unlawful practices to positions they would have been in but for the
discriminatory conduct and (c) designing or constructing any covered
multi-family dwellings in the future that do not contain the accessibility and
adaptability features set forth in the Fair Housing Act; and requires us to pay
damages, including punitive damages, and a civil penalty.
With any acquisition, we plan for and undertake renovations needed to
correct deferred maintenance, life/safety and Fair Housing matters. We are
currently in the process of determining the extent of the alleged noncompliance
on the properties discussed above and the remaining changes that may be
necessitated. At this time, we are not able to provide an estimate of costs and
expenses associated with the resolution of this matter, however, management does
not expect the amount to be material. There can be no assurance that we will be
successful in the defense of the Justice Department action.
10. SUBSEQUENT EVENTS
In the ordinary course of our business, we issue letters of intent
indicating a willingness to negotiate for the purchase or sale of multifamily
properties or development land. In accordance with the local real estate market
practice, such letters of intent are non-binding, and neither party to the
letter of intent is obligated to pursue negotiations unless and until a
definitive contract is entered into by the parties. Even if definitive contracts
are entered into, the letters of intent and resulting contracts contemplate that
such contracts will provide the purchaser with time to evaluate the properties
and conduct due diligence and during which periods the purchaser will have the
ability to terminate the contracts without penalty or forfeiture of any deposit
or earnest money. There can be no assurance that definitive contracts will be
entered into with respect to any properties covered by letters of intent or that
12
we will acquire or sell any property as to which we may have entered into a
definitive contract. Further, due diligence periods are frequently extended as
needed. An acquisition or sale becomes probable at the time that the due
diligence period expires and the definitive contract has not been terminated. We
are then at risk under an acquisition contract, but only to the extent of any
earnest money deposits associated with the contract, and are obligated to sell
under a sales contract.
We are currently in the due diligence period on contracts for the purchase
of land for development. No assurance can be made that we will be able to
complete the negotiations or become satisfied with the outcome of the due
diligence.
We seek to selectively dispose of assets that have a lower projected net
operating income growth rate than the overall portfolio, or no longer conform to
our operating and investment strategies. The proceeds from these sales may be
reinvested in acquisitions or developments, used to retire debt or repurchase
shares.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with all of the
financial statements and notes appearing elsewhere in this report as well as the
audited financial statements appearing in our 1998 Annual Report to
Shareholders. Where appropriate, comparisons are made on a dollars
per-weighted-average-unit basis in order to adjust for changes in the number of
apartment homes owned during each period. The statements contained in this
report that are not historical facts are forward-looking statements, and actual
results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the following: changes in general economic
conditions, changes in financial markets and interest rates, our failure to
qualify as a real estate investment trust ("REIT") and unexpected Year 2000
problems.
BUSINESS
We are a Houston-based REIT and report as a single business segment with
activities related to the ownership, development, acquisition, management and
disposition of multifamily apartment communities in the Southwest, Southeast,
Midwest and Western regions of the United States. At September 30, 1999, we
owned interests in, operated or were developing 159 multifamily properties
containing 55,785 apartment homes located in nine states. Eight of our
multifamily properties containing 3,570 apartment homes were under development
at September 30, 1999. Two of our newly developed multifamily properties
containing 820 apartment homes were in lease-up at September 30, 1999. We have
several additional sites which we intend to develop into multifamily apartment
communities.
ACQUISITION OF OASIS RESIDENTIAL, INC.
On April 8, 1998, we acquired, through a tax-free merger, Oasis
Residential, Inc., a publicly traded Las Vegas-based multifamily REIT. The
acquisition increased the size of our portfolio from 100 to 152 completed
multifamily properties, and from 34,669 to 50,183 apartment homes at the date of
acquisition. Each share of Oasis common stock outstanding on April 8, 1998 was
exchanged for 0.759 of a Camden common share. Each share of Oasis Series A
cumulative convertible preferred stock outstanding on April 8, 1998 was reissued
as one Camden Series A cumulative convertible preferred share with terms and
conditions comparable to the Oasis preferred stock. We issued 12.4 million
common shares and 4.2 million preferred shares in exchange for the outstanding
Oasis common and preferred stock, respectively. Approximately $484 million of
Oasis debt, at fair value, was assumed in the merger.
In connection with the merger with Oasis, on June 30, 1998, we completed a
transaction in which Camden USA, Inc., one of our wholly owned subsidiaries, and
TMT-Nevada, L.L.C., a Delaware limited liability company, formed Sierra-Nevada
Multifamily Investments, LLC. We entered into this transaction to reduce our
market risk in the Las Vegas area. TMT-Nevada holds an 80% interest in
Sierra-Nevada and Camden USA holds the remaining 20% interest.
In this transaction, we transferred to Sierra-Nevada 19 apartment
communities containing 5,119 apartment homes for an aggregate of $248 million.
Prior to the merger, Oasis owned 100% of each of these communities. In the
merger, Camden USA acquired these communities. As a result, after the merger and
prior to the Sierra-Nevada transaction, Camden USA owned 100% of each of these
19 properties. These properties are located in Las Vegas, Nevada. This
transaction was funded with capital invested by the members of Sierra-Nevada,
the assumption of $9.9 million of existing nonrecourse indebtedness, the
14
issuance of 17 nonrecourse cross collateralized and cross defaulted loans
totaling $180 million and the issuance of two nonrecourse second lien mortgages
totaling $7 million.
PROPERTY PORTFOLIO
Our multifamily property portfolio, excluding land held for future
development and joint venture properties that we do not manage, is summarized as
follows:
September 30,1999 December 31, 1998
------------------------------- -----------------------------
Apartment Apartment
Homes Properties % (a) Homes Properties % (a)
----------- ------------ ------ --------- ------------ ------
Operating Properties
Texas
Houston 7,502 18 15% 6,345 15 13%
Dallas (b) 9,381 26 18 9,381 26 17
Austin 1,745 6 4 1,745 6 4
Other 1,641 5 3 1,641 5 3
----------- ------------ ------ --------- ------------ ------
Total Texas Operating Properties 20,269 55 40 19,112 52 37
Arizona 2,326 7 5 2,326 7 5
California 1,272 3 3 1,272 3 3
Colorado (b) 1,972 6 3 1,972 6 3
Florida 7,335 17 15 7,261 17 14
Kentucky 1,016 4 2 1,142 5 2
Missouri 3,327 8 7 3,327 8 7
Nevada (b) 11,963 41 14 12,163 41 14
North Carolina (b) 2,735 10 4 2,735 10 4
----------- ----------- ------ --------- ------------ ------
Total Operating Properties 52,215 151 93 51,310 149 89
----------- ----------- ------ --------- ------------ ------
Properties Under Development
Texas
Houston (c) 756 1 1 2,213 5 4
Dallas 620 1 1 600 1 1
----------- ----------- ------ --------- ------------ ------
Total Texas Development Properties 1,376 2 2 2,813 6 5
Arizona 332 1 1 325 1 1
California 380 1 1 380 1 1
Colorado 558 2 1 558 2 1
Florida (c) 492 1 1 1,150 3 2
Kentucky 432 1 1 432 1 1
----------- ----------- ------ --------- ------------ ------
Total Properties Under Development 3,570 8 7 5,658 14 11
----------- ----------- ------ --------- ------------ ------
Total Properties 55,785 159 100% 56,968 163 100%
=========== =========== ====== ========= ============ ======
Less: Joint Venture
Apartment Homes (b) 6,504 6,704
----------- -----------
Total Apartment Homes
- Owned 100% 49,281 50,264
=========== ===========
(a) Based on number of apartment homes owned 100%
(b) The figures include properties held in joint ventures as follows: one
property with 708 apartment homes in Dallas and two properties with 556
apartment homes in North Carolina in which we own a 44% interest, the
remaining interest is owned by unaffiliated private investors; one
property with 321 apartment homes in Colorado in which we own a 50%
interest, the remaining interest is owned by an unaffiliated private
investor; and 19 properties with 4,919 apartment homes (5,119 apartment
homes at December 31, 1998) in Nevada owned through Sierra-Nevada
Multifamily Investments, LLC in which we own a 20% interest.
(c) The September 30, 1999 amounts exclude one property with 300 apartment
homes in Houston which is now classified as land held for future
development and one property with 352 apartment homes in Florida which was
sold during the year.
15
At September 30, 1999, we had two completed properties under lease-up as
follows:
Product Number of % Leased Estimated
Type Apartment at 11/10/99 Date of Date of
Property and Location Homes Completion Stabilization
- ----------------------------------------- ------------ -------------- ------------- -------------- -----------------
The Park at Goose Creek
Baytown, TX Affordable 272 77% 3Q99 4Q99
The Park at Holly Springs
Houston, TX Garden 548 49% 3Q99 4Q00
At September 30, 1999, we had 8 development properties in various stages of
construction as follows:
Product Number of Estimated Estimated Estimated
Type Apartment Cost Date of Date of
Property and Location Homes ($ millions) Completion Stabilization
- ----------------------------------------- ------------------- ------------ -------------- -------------- ---------------
In Lease-up
The Park at Interlocken
Denver, CO Garden 340 $ 34.9 4Q99 1Q00
The Park at Greenway
Houston, TX Urban 756 57.5 4Q99 3Q00
The Park at Caley
Denver, CO Garden 218 18.3 1Q00 2Q00
The Park at Lee Vista
Orlando, FL Garden 492 32.8 1Q00 1Q01
The Park at Oxmoor
Louisville, KY Garden 432 22.1 1Q00 1Q01
---------- -----------
Subtotal 2,238 165.6
---------- -----------
Under Construction
The Park at Arizona Center
Phoenix, AZ Urban 332 24.5 1Q00 1Q01
The Park at Farmers Market, Phase I
Dallas, TX Urban 620 49.8 4Q00 4Q01
The Park at Crown Valley
Mission Viejo, CA Garden 380 42.0 1Q01 3Q01
---------- ----------
Subtotal 1,332 116.3
---------- -----------
Total for 8 development properties 3,570 $ 281.9
========== ===========
We stage our construction to allow leasing and occupancy during the
construction period which we believe minimizes the lease-up period following
completion of construction. Our accounting policy related to properties in the
development and leasing phase is that all operating expenses, excluding
depreciation, associated with occupied apartment homes are expensed against
revenues generated by those apartment homes as they become occupied. All
construction and carrying costs are capitalized and reported on the balance
sheet in "Projects under development, including land" until such apartment homes
are completed. Upon completion of each building of the project, the total cost
of that building and the associated land is transferred to "Land" and "Buildings
and improvements" and the assets are depreciated over their estimated useful
lives using the straight-line method of depreciation. Upon achieving 90%
occupancy, all apartment homes are considered operating and we begin expensing
all items that were previously considered as carrying costs. Generally, this
occurs within one year of opening the leasing office, with some allowances for
larger than average properties.
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COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
The changes in operating results from period to period are primarily due to
the development of five properties totaling 1,759 apartment homes, the
acquisition of three properties containing 1,626 apartment homes, the
disposition of two properties containing 358 apartment homes and an increase in
net operating income generated by the stabilized portfolio. The weighted average
number of apartment homes for the third quarter of 1999 increased by 1,986
apartment homes, or 4.5%, from 44,006 to 45,992. Total operating properties were
128 and 125 at September 30, 1999 and 1998, respectively. The 45,992 weighted
average apartment homes and the 128 operating properties exclude the impact of
our ownership interest in properties owned in joint ventures. The 125 operating
properties at September 30, 1998 have been restated to reflect the combination
of operations of two adjacent properties in Nevada, Texas and Florida at
December 31, 1998.
Rental income for the quarter ended September 30, 1999 increased $7.0
million or 8.7% over the quarter ended September 30, 1998. Rental income per
apartment home per month increased $25 or 4.1%, from $604 to $629 for the third
quarters of 1998 and 1999, respectively. The increase was primarily due to
increased revenue growth from the stabilized real estate portfolio and higher
average rental rates on two of the three acquired properties and four of the
five completed development properties. Additionally, the two disposed properties
had average rental rates significantly lower than the portfolio average. Overall
average occupancy increased slightly from 93.8% for the quarter ended September
30, 1998 to 94.0% for the quarter ended September 30, 1999.
Other property income for the quarter ended September 30, 1999 increased
$1.0 million over the quarter ended September 30, 1998. The increase in other
property income was due primarily to a $700,000 increase from revenue sources
such as telephone, cable and water.
Property operating and maintenance expenses increased $2.7 million or
10.6%, from $25.5 million to $28.2 million and increased as a percent of total
property income from 30.1% to 30.4% for the quarters ended September 30, 1998
and 1999, respectively. The increase in operating expense was due to a larger
number of apartment homes owned and in operation. Our operating expense ratios
increased primarily as a result of an increase in repairs and maintenance costs.
Real estate taxes increased $1.0 million from $8.2 million to $9.2 million
for the third quarters of 1998 and 1999, respectively, which represents an
annual increase of $56 per apartment home. The increase was primarily due to
increases in the valuations of properties held in our Texas and Florida
portfolios and increases in property tax rates.
General and administrative expenses increased $460,000 from $2.0 million to
$2.5 million, and increased as a percent of revenues from 2.3% to 2.6% for the
quarters ended September 30, 1998 and 1999, respectively. The increase is
primarily due to increases in salary and payroll related costs.
Interest expense increased from $13.4 million to $14.7 million primarily
due to interest on debt incurred to repurchase our shares under the common share
repurchase program. Interest capitalized was $4.1 million and $2.9 million for
the quarters ended September 30, 1999 and 1998, respectively.
Depreciation and amortization increased from $20.4 million to $22.7
million. This increase was due primarily to developments, renovations and
property acquisitions.
Gains on sale of properties and joint venture investments increased $2.3
million due to gains from the disposition of one multifamily property containing
232 units and our joint venture investment in two commercial office buildings.
The gains recorded on these dispositions were partially offset by a loss on the
17
sale of a retail/commercial center. These gains do not include a loss on the
sale of a 408 unit property held in a joint venture of $738,000 which is
included in "Equity in Income of Joint Ventures".
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
The changes in operating results from period to period are primarily due to
the Oasis merger, the transfer of 19 properties totaling 5,119 apartment homes
into the Sierra-Nevada joint venture, development of five properties aggregating
1,759 apartment homes, the acquisition of five properties containing 2,226
apartment homes, the disposition of eight properties containing 1,752 apartment
homes and an increase in net operating income generated by the stabilized
portfolio. The weighted average number of apartment homes for the first nine
months of 1999 increased by 3,592 apartment homes, or 8.6%, from 41,712 to
45,304. Total operating properties were 128 and 125 at September 30, 1999 and
1998, respectively, and exclude those owned through joint venture investments.
The weighted average number of apartment homes of 45,304 and 41,712 exclude the
impact of our ownership interest in apartment homes owned in joint ventures
throughout the nine month periods. The 125 operating properties at September 30,
1998 have been restated to reflect the combination of operations of two adjacent
properties in Nevada, Texas and Florida at December 31, 1998.
Rental income increased $33.0 million or 15.0% from $219.6 million to
$252.6 million for the nine months ended September 30, 1998 and 1999,
respectively. Rental income per apartment home per month increased $34 or 5.8%,
from $585 to $619 for the nine months ended September 30, 1998 and 1999,
respectively. The increase was primarily due to increased revenue growth from
the stabilized real estate portfolio, higher average rental rates on properties
added to the portfolio through the Oasis merger, four of the five acquired
properties and completion of new development properties. Additionally, seven of
the eight disposed properties had average rental rates significantly lower than
the portfolio average.
Other property income increased $3.0 million from $13.5 million to $16.6
million for the nine months ended September 30, 1998 and 1999, respectively. The
increase in other property income was due to a larger number of apartment homes
owned and in operation and a $1.9 million increase from revenue sources such as
telephone, cable and water.
Property operating and maintenance expenses increased $7.6 million, from
$72.8 million to $80.3 million, but decreased as a percent of total property
income from 31.2 % to 29.8% for the nine months ended September 30, 1998 and
1999, respectively. Our operating expense ratio decreased from the prior year
primarily as a result of the impact of our April 1, 1998 adoption of a new
accounting policy, whereby expenditures for floor coverings, appliances and HVAC
unit replacements are expensed in the first five years of a property's life and
capitalized thereafter. Prior to the adoption of this policy, we had been
expensing these costs. Had this policy been adopted as of January 1, 1998, the
nine months ended September 30, 1998 operating expense ratio would have been
30.7%.
Real estate taxes increased $4.5 million from $23.1 million to $27.7
million for the nine months ended September 30, 1998 and 1999, respectively,
which represents an annual increase of $75 per apartment home. The increase was
primarily due to increases in the valuations of renovated, acquired and
developed properties and increases in property tax rates. This increase per
apartment home was partially offset by lower property taxes in the portfolio
added through the Oasis merger.
General and administrative expenses increased $1.7 million from $5.5
million to $7.3 million, and increased as a percent of revenues from 2.3% to
2.6%. The general and administrative expense ratio increase is mainly
attributable to the impact of our March 20, 1998 adoption of Issue No. 97-11,
Accounting for Internal Costs Relating to Real Estate Property Acquisitions,
discussed in Note 1, which is partially offset by efficiencies resulting from
operating a larger portfolio.
18
Interest expense increased from $36.7 million to $42.2 million due to
increased indebtedness related to the Oasis merger, completed developments,
renovations and property acquisitions. Additionally, interest expense increased
due to interest on debt incurred to repurchase our shares under the common share
repurchase program. Interest capitalized was $6.4 million and $12.3 million for
the nine months ended September 30, 1998 and 1999, respectively.
Depreciation and amortization increased from $57.4 million to $65.5
million. This increase was due primarily to the Oasis merger, developments,
renovations and property acquisitions.
Gains on sale of properties and joint venture investments increased $3.0
million due to gains from the disposition of two multifamily properties
containing 358 units and our joint venture investment in two commercial office
buildings. The gains recorded on these dispositions were partially offset by a
loss on the sale of a retail/commercial center. These gains do not include a
loss on the sale of a 408 unit property held in a joint venture of $738,000
which is included in "Equity in Income of Joint Ventures".
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL STRUCTURE
We intend to continue maintaining what management believes to be a
conservative capital structure by:
(i) using a prudent combination of debt and common and preferred
equity;
(ii) extending and sequencing the maturity dates of our debt where
possible;
(iii) managing interest rate exposure using fixed rate debt and
hedging, where appropriate;
(iv) borrowing on an unsecured basis in order to maintain a
substantial number of unencumbered assets; and
(v) maintaining conservative coverage ratios.
The interest expense coverage ratio, net of capitalized interest, was 3.8
and 3.7 times for the nine months ended September 30, 1999 and 1998,
respectively, and 3.7 times and 3.8 times for the quarters ended September 30,
1999 and 1998, respectively. At September 30, 1999 and 1998, 75.7% and 70.6%,
respectively, of our properties (based on invested capital) were unencumbered.
LIQUIDITY
We intend to meet our short-term liquidity requirements through cash flows
provided by operations, our unsecured line of credit discussed in the financial
flexibility section and other short-term borrowings. We expect that our ability
to generate cash will be sufficient to meet our short-term liquidity needs,
which include:
(i) normal operating expenses;
(ii) debt service requirements;
(iii) capital expenditures;
(iv) property developments;
(v) common share repurchases; and
(vi) common and preferred distributions.
We consider our long-term liquidity requirements to be the repayment of
maturing secured debt and borrowings under our unsecured line of credit and
funding of acquisitions. We intend to meet our long-term liquidity requirements
through the use of common and preferred equity capital, senior unsecured debt
and property dispositions. As of September 30, 1999, we had $340 million
available under the unsecured line of credit, $75 million available under our
19
universal shelf registration, and $14.5 million available under our medium-term
note program. We have significant unencumbered real estate assets which could be
sold or used as collateral for financing purposes should other sources of
capital not be available.
In September 1999, we announced that our Board of Trust Managers had
declared a dividend in the amount of $0.52 per share for the third quarter of
1999 which was paid on October 15, 1999 to all common shareholders of record as
of September 30, 1999. We paid an equivalent amount per unit to holders of the
common operating partnership units. This distribution to common shareholders and
holders of common operating partnership units equates to an annualized dividend
rate of $2.08 per share or unit.
In September 1999, we declared a quarterly dividend on our Series A
Cumulative Preferred Shares, which were issued in conjunction with the merger of
Oasis. The dividend in the amount of $0.5625 per share is payable November 15,
1999 to all preferred shareholders of record as of September 30, 1999.
FINANCIAL FLEXIBILITY
We concentrate our growth efforts toward selective development and
acquisition opportunities in our current markets, and through the acquisition of
existing operating portfolios and development properties in selected new
markets. During the nine months ended September 30, 1999, we incurred $154.9
million in development costs and no acquisition costs. We are developing eight
additional properties at an aggregate cost of approximately $281.9 million. We
fund our developments and acquisitions through a combination of equity capital,
partnership units, medium-term notes, construction loans, other debt securities
and the unsecured line of credit. We also seek to selectively dispose of assets
that have a lower projected net operating income growth rate than the overall
portfolio, or no longer conform to our operating and investment strategies. Such
sales generate capital for acquisitions and new developments or for debt
reduction.
In August 1999, we entered into a line of credit with 14 banks for a total
commitment of $375 million. This line of credit replaces our three previous
lines of credit which totaled $275 million. The new line of credit is scheduled
to mature in August 2002. The scheduled interest rate on the line of credit is
currently based on a spread over LIBOR or Prime. The scheduled interest rates
are subject to change as our credit ratings change. Advances under the line of
credit may be priced at the scheduled rates, or we may enter into bid rate loans
with participating banks at rates below the scheduled rates. These bid rate
loans have terms of six months or less and may not exceed the lesser of $187.5
million or the remaining amount available under the line of credit. The line of
credit is subject to customary financial covenants and limitations.
As an alternative to our unsecured line of credit, we from time to time
borrow using competitively bid unsecured short-term notes with lenders who may
or may not be a part of the unsecured line of credit bank group. Such borrowings
vary in term and pricing and are typically priced at interest rates below those
available under the unsecured line of credit.
During the third quarter of 1999, our operating partnership issued $35.5
million of 8.25% Series C Cumulative Redeemable Perpetual Preferred Units.
Distributions on the preferred units are payable quarterly in arrears. The
preferred units are redeemable for cash by the operating partnership on or after
the fifth anniversary of issuance at par plus the amount of any accumulated and
unpaid distributions. The preferred units are convertible after 10 years by the
holder in to our 8.25% Series C Cumulative Redeemable Perpetual Preferred
Shares. The preferred units are subordinate to present and future debt.
On February 23, 1999, our operating partnership issued $100 million of 8.5%
Series B Cumulative Redeemable Perpetual Preferred Units. Distributions on the
preferred units are payable quarterly in arrears. The preferred units are
redeemable for cash by the operating partnership on or after the fifth
anniversary of issuance at par plus the amount of any accumulated and unpaid
distributions. The preferred units are convertible after 10 years by the holder
20
into our 8.5% Series B Cumulative Redeemable Perpetual Preferred Shares. The
preferred units are subordinate to present and future debt.
During the first quarter of 1999, we issued $39.5 million aggregate
principal amounts of senior unsecured notes from our $196 million medium-term
note shelf registration. These fixed rate notes, due in January 2002 through
January 2009, bear interest at a weighted average rate of 7.07%, payable
semiannually on January 15 and July 15. The net proceeds were used to reduce
indebtedness outstanding under the unsecured lines of credit.
On April 9, 1999, we issued $15 million principal amounts of senior
unsecured notes from our $196 million medium-term note shelf registration. These
fixed rate notes, due in March 2002, bear interest at a rate of 6.74%, payable
semiannually on March 15 and September 15. The net proceeds were used to reduce
indebtedness outstanding under the unsecured lines of credit.
On April 15, 1999, we issued from our $500 million shelf registration an
aggregate principal amount of $200 million of five-year senior unsecured notes.
Interest on the notes accrues at an annual rate of 7.0% and is payable
semi-annually on April 15 and October 15, commencing on October 15, 1999. The
notes are direct, senior unsecured obligations and rank equally with all other
unsecured and unsubordinated indebtedness. The notes may be redeemed at any time
at our option subject to a make-whole provision. The proceeds from the sale of
the notes were $197.7 million, net of issuance costs. We used the net proceeds
to reduce $171 million of indebtedness under the unsecured lines of credit and
for general working capital purposes.
During September 1999, we executed three interest rate swap agreements
totaling $70 million which are scheduled to mature in October 2000. These swaps
are being used as a hedge of interest rate exposure on our $90 million medium
term notes issued in October 1998 which mature in October 2000. Currently, the
interest rate on the medium term notes is fixed at 7.23%. The interest rates on
the swaps are based on the one-month LIBOR rate plus a spread resulting in an
effective interest rate on the swaps of 6.58% at September 30, 1999.
At September 30, 1999, the weighted average interest rate on floating rate
debt was 6.07%.
FUNDS FROM OPERATIONS
Management considers FFO to be an appropriate measure of performance of an
equity REIT. The National Association of Real Estate Investment Trusts currently
defines FFO as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring and
sales of property, plus real estate depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. Our definition
of diluted FFO assumes conversion at the beginning of the period of all dilutive
convertible securities, including minority interest, which are convertible into
common equity.
We believe that in order to facilitate a clear understanding of our
consolidated historical operating results, FFO should be examined in conjunction
with net income as presented in the consolidated financial statements and data
included elsewhere in this report. FFO is not defined by generally accepted
accounting principles. FFO should not be considered as an alternative to net
income as an indication of our operating performance or to net cash provided by
operating activities as a measure of our liquidity. Further, FFO as disclosed by
other REITs may not be comparable to our calculation. Our diluted FFO for the
three months ended September 30, 1999 increased slightly over the three months
ended September 30, 1998. The increase in diluted FFO during the three months
ended September 30, 1999 from property acquisitions, developments and
improvements in the performance of the stabilized properties was offset by the
repurchase of our shares under our common share repurchase program. Our diluted
21
FFO for the nine months ended September 30, 1999 increased $14.4 million over
the nine months ended September 30, 1998. This increase in diluted FFO was due
to the Oasis merger, property acquisitions, developments and improvements in the
performance of the stabilized properties in our portfolio.
The calculation of basic and diluted FFO for the three and nine months
ended September 30, 1999 and 1998 follows:
(In thousands)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ----------- ----------
FUNDS FROM OPERATIONS:
Net income to common shareholders $ 13,535 $ 14,650 $ 40,079 $ 33,179
Real estate depreciation 22,315 20,070 64,388 56,364
Real estate depreciation from unconsolidated ventures 797 754 2,423 1,498
Preferred share dividends 2,343
Loss on sale of property held in unconsolidated ventures 738 738
Gain on sale of properties and joint venture interests (2,259) (2,979)
---------- ---------- ----------- ----------
FUNDS FROM OPERATIONS - BASIC 35,126 35,474 104,649 93,384
Preferred share dividends 2,343 2,343 7,029 4,686
Minority interest 892 59 1,850 1,043
Interest on convertible subordinated debentures 63 69 195 249
Amortization of deferred costs on convertible debentures 7 6 19 24
---------- ---------- ----------- ----------
FUNDS FROM OPERATIONS - DILUTED $ 38,431 $ 37,951 $ 113,742 $ 99,386
========== ========== =========== ==========
WEIGHTED AVERAGE SHARES - BASIC 40,939 44,370 41,668 40,115
Common share options and awards granted 452 387 414 414
Preferred shares 3,207 3,207 3,207 2,150
Minority interest units 2,621 2,680 2,646 2,587
Convertible subordinated debentures 145 156 148 188
========== ========== =========== ==========
WEIGHTED AVERAGE SHARES - DILUTED 47,364 50,800 48,083 45,454
========== ========== =========== ==========
INFLATION
We lease apartments under lease terms generally ranging from six to
thirteen months. Management believes that such short-term lease contracts lessen
the impact of inflation due to our ability to adjust rental rates to market
levels as leases expire.
YEAR 2000 CONVERSION
We have recognized the need to ensure that our computer equipment and
software ("computer systems"), other equipment and operations will not be
adversely impacted by the change to the calendar Year 2000. As such, we have
taken steps to identify and resolve potential areas of risk by implementing a
comprehensive Year 2000 action plan. The plan is divided into four phases:
identification, assessment, notification/certification, and testing/contingency
plan development; and includes three major elements: computer systems, other
equipment and third parties. We are on the fourth phase for our computer
systems, other equipment and third party services.
We believe that the Year 2000 issue will not pose significant operating
problems for our computer systems, since the majority of computer equipment and
software products we utilize are already compliant or were converted or modified
as part of system upgrades unrelated to the Year 2000 issue. We are in the
22
process of completing a contingency plan which will permit our primary computer
systems operations to continue if the on-going testing of such conversions and
modifications reveals any Year 2000 issues presently unknown to us.
Our estimated total cost of addressing the Year 2000 issues with respect to
our own computer systems, other equipment and operations is expected to be
minimal since the cost of any computer systems upgrades and conversions to
specifically address the Year 2000 issues have been and are expected to be
minimal. Additionally, the majority of Year 2000 issues are being addressed by
use of internal resources and such future internal costs are expected to be
minimal as well. We do not separately track internal cost, which primarily
consist of payroll and related costs, incurred on Year 2000 issues. We have not
estimated any time or other internal costs that may be incurred by us as a
result of the failure of any third parties to become Year 2000 ready or costs to
implement any contingency plans.
We are communicating with our key third party service providers and
vendors, including those who have previously sold equipment to us, to obtain
information and compliance certificates, if possible, regarding their state of
readiness with respect to the Year 2000 issue. As of November 10, 1999, 99% of
key third party service providers have responded with compliance certificates.
Failure of certain third parties to remediate Year 2000 issues affecting their
respective businesses on a timely basis, or to implement contingency plans
sufficient to permit uninterrupted continuation of their businesses in the event
of a failure of their systems, could have a material adverse impact on our
business and results of operations. Final determination of third party Year 2000
readiness is substantially complete. None of the responses received from third
party service providers as of November 10, 1999 have indicated any problem with
bringing their services into Year 2000 compliance. We intend to continue to
monitor the progress made by third parties, test critical system interfaces and
formulate appropriate contingency and business continuation plans to address
third party issues identified through our evaluations and assessments.
We presently believe that the worst case scenario with respect to the Year
2000 issues is the failure of third party service providers, including utility
suppliers and banks, to become Year 2000 compliant. This could result in
interruptions in services to our apartment communities for a period of time and
could adversely affect our access to credit and money markets which, in turn,
could result in loss of normal operating capacity. If our computer systems
completely fail, we would be able to continue affected functions either manually
or through non-Year 2000 compliant systems. We do not believe that the increased
costs associated with such interruptions from both third party service failure
and computer system failure could exceed $1 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes have occurred since our Annual Report on Form 10-K for
the year ended December 31, 1998.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) 10.1 Form of Credit Agreement dated August 18, 1999 between Bank
of America, N.A. and the registrant
11.1 Statement regarding Computation of Earnings Per Common Share
27.1 Financial Data Schedule (filed only electronically with the
Commission)
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the registrant during
the quarter for which this report is filed.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on our behalf by the
undersigned thereunto duly authorized.
CAMDEN PROPERTY TRUST
/s/ G. Steven Dawson November 12, 1999
- -------------------------------- --------------------------
G. Steven Dawson Date
Sr. Vice President of Finance,
Chief Financial Officer and Treasurer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
/s/ Dennis M. Steen November 12, 1999
- -------------------------------- --------------------------
Dennis M. Steen Date
Vice President - Controller and Chief
Accounting Officer